Money printing is another name for deficit spending, QE, and debt monetization.
The end game is debt saturation, asset bubbles, and a complete dependence on credit for all economic activity. The sovereign becomes indebted. If you keep doing it long enough, then there is a buildup of non-performing and underperforming loans. This can be called debt overhang. Banks love it when debt markets grow.
Debt levels get heavy and the system becomes overleveraged. Mal-investment occurs and is protected, and allowed to continually refinance. All the printing works to suppress interest rates so that the refinancing can keep going. Debts don't get paid off, ever. We've been doing it for so long that the debt deflationary pressure is limiting inflation, so we end up monetizing a lot of debt and getting only a small amount of real GDP.
In theory, this should put pressure on the domestic currency and create local inflation, and it has (Fed likes 2%). But, in the case of the US, we have managed exchange rates and the reserve currency. This is called a managed float regime, or 'dirty' float. It works to prevent currency depreciation.
Because of the dirty float (Fed, BOJ, BOE, ECB, RBA, BOC, etc.) the central banks can print all they want and just fix the exchange rates. There is very little risk of runaway inflation. But, there is serious risk of deflation in any significant slow down in demand. This is due to the amount of leverage in the system (overhang, malinvestment, low margin businesses).
That's what SARS-COV2 is doing. It's causing a collapse in demand when debt levels are at all time highs. Revenues are evaporating which is creating a need for exposed firms to source cash and cut expenses, else they may go out of business. Problem is, for some of the affected industries, they might actually be better off just exciting the industry they were in prior to COVID.
The Fed wants everything to go back to the way it was before COVID, but we're not there yet.[/QUOT
Great explanation. What your saying is correct. But the time this end which could be 12-18 months i believe overall consumption will be much lower. Nobody's talking about the demand side which won't come back like it was. This will end up much like Japan with massive debt and low overall growth. We saw some of that the last few yrs. Even with all the tax cuts Trump did overall Gdp growth was still not much higher than during Obama. The return on stimulus gets less and less due to the massive overhang of ever increasing debt. I just read an artilce about how Chinesse people are still scared to go out even though they can. The Virus will scar people going forward. Over the next yr people will get used to going out less and doing less of everything. Company's will spend less on plant and equipment . Out standard of living will fall in the company decade. For instance people will keep cars longer, buy fewer clothes,Eat out less, go on few vacations etc. The coming yrs will be a demand problem.
